Year-end tax planning opportunities for your consumer-focused business

It’s that time of the year when many franchise, retail, and restaurant business owners reflect on the year that was and plan for the opportunities ahead. No review is complete without an analysis of the tax landscape. Here are some key tax changes and opportunities that should be on your radar.

Upcoming changes

Many tax provisions have scheduled expiration dates or planned phaseouts that will reduce their benefits over time. Here are some important provisions subject to changes in 2022 and 2023 that could affect your tax bill:

• Bonus depreciation phaseout. A 2017 tax law significantly accelerated depreciation deductions for asset purchases, allowing 100% bonus depreciation for new and used assets placed in service before Jan. 1, 2023. The bonus percentage decreases 20% for each year after 2022, disappearing completely after Dec. 31, 2026. Note if you’ve purchased, renovated, or constructed a building, a cost segregation study can identify items with shorter depreciable lives than the 39-year standard period, potentially resulting in larger deductions, including bonus depreciation in the earlier years of the assets.
• Expiration of increased meal deductibility. To support restaurants affected by the COVID-19 pandemic, the deductibility of certain business meals was increased from 50 to 100% in calendar years 2021 and 2022. The deductibility of these meals is expected to return to 50% in 2023 and beyond.
• Changes to interest expense limitations. The Tax Cuts and Jobs Act of 2017 imposed limits on the interest that businesses could deduct. To lessen the impact of the provision in its early years, the calculation of adjusted taxable income included a variety of add-backs, including depreciation, amortization, and depletion deductions. Those add-backs are no longer available in 2022 and beyond. If your business has relied on them to claim higher interest deductions, ensure your current year estimates are sufficient.

Tax-saving opportunities

It’s also prudent to take this time to ensure you’re utilizing all existing tax benefits that apply to your business. Some of those top considerations are:

• The FICA tip credit. If you operate a restaurant, you can claim a credit against your federal income tax based on the share of FICA and Medicare taxes you pay on tip income that employees report. The credit provides a dollar-for-dollar reduction of the employer’s federal income tax.
• The Work Opportunity Tax Credit (WOTC). This credit rewards employers who hire individuals from certain groups that have consistently faced barriers to employment. The program provides a credit against income taxes for a percentage of qualifying wages paid to members of a targeted group. At a time when many employers are struggling to fill jobs, the WOTC hiring process can help you tap into an underutilized pool of workers. Your payroll provider can manage the documentation necessary to certify qualified employees and calculate the credit. Note that this credit is currently due to expire on Dec. 31, 2025.
• Employee retention credit (ERC). If your business meets the eligibility criteria, you can still amend your 2020 and 2021 payroll returns to claim the ERC. As a reminder, after amending your payroll returns, you’ll also have to amend your income tax returns for the amount of ERC claimed as it will increase your taxable income. 

Take this time to ensure you’re utilizing all existing tax benefits that apply to your business.

These are just a few items to consider as you wind up 2022 and begin to plan for 2023. Many of these tax provisions are dependent on the specific facts and circumstances of your business, so be sure to review the fine details carefully with your tax advisor.